Which of the following is true about the long-run aggregate supply curve?
A) It does not shift in response to temporary changes in aggregate demand.
B) It is vertical at the level of potential GDP.
C) It shows the relationship between the price level and real GDP when the economy is at full employment.
D) All of the above are true.

Question

Quizplus · Accepted Answer

All of the statements are true about the long-run aggregate supply (LRAS) curve. 
A) LRAS is a vertical line because it represents the potential production capacity of the economy at full employment, which is not affected by changes in aggregate demand.
B) LRAS represents the output level at which all available resources are efficiently utilized in the economy. Thus, any output level above the potential GDP results in a temporary surge in prices only.
C) The LRAS curve depicts the relation between real GDP and the price level when all resources are optimized, and the economy is producing at its potential. Therefore, it represents the economy's capacity to produce the goods and services at a constant price level.

Which of the Following Is True About the Long-Run Aggregate